How to Get a Home Loan With Poor Credit

by HomeLoan.com

When you are trying to buy a home with poor credit, you will face more challenges than those with average or good credit. It is not impossible to get a home loan, but you will have to jump through more hoops than other people.

Step 1

Get your credit report. If you are going to have an idea of what you need to do in order to get your home loan, you will have to know the state of your credit before getting the loan. Contact the three credit bureaus to get your credit report and credit score. You will have to pay for the score. The higher the score, the better your chances of getting a loan.

Step 2

Find a federal loan program. There are many federal housing programs that guarantee home loans for first-time home buyers. The loans are done through banks, but are backed by the federal government. This reduces the risk and therefore makes it easier for you to get the loan.

Step 3

Pay a higher down payment. You will also lessen your credit risk if you place a larger-than-normal down payment. This way, the loan amount is less than the value of the house and the bank has that money in hand. The standard down payment is 10 percent, but your chances of getting a loan will be better if your provide 20 or 30 percent.

Step 4

Buy a foreclosed house. When a house is foreclosed, the bank takes possession and tries to sell it at least for what it is owed. The bank does not want to keep houses and will be much more likely to provide a loan to someone with bad credit if it means taking the house off their hands, especially if you have a down payment.

Step 5

Take higher interest. If your credit is bad, you may need to accept a higher interest rate on your home loan. Before you accept the higher interest rate, make sure you know how much the monthly payment will be and that it is within your range. A home loan will do you no good if you can't make the payments.